Binance and CZ Charged For Allowing Money Laundering

The world’s largest crypto trading platform, Binance, and its founder and former CEO, Changpeng Zhao (CZ), are facing class action plaintiffs in Seattle Federal Court over alleged money laundering.

CZ is currently serving a four-month sentence after reaching a deal with the US Department of Justice (DOJ) earlier this year. He is expected to be released on September 29.

Crypto Investors Sue Binance, CZ for Enabling Money Laundering

Three crypto investors claim they couldn’t recover their stolen assets due to Binance’s alleged failure to prevent money laundering. On August 16, the plaintiffs filed the case in the US District Court for the Western District of Washington, Seattle. Represented by top class action lawyers, they argue that exchange’s actions resulted in consumer harm.

According to the lawsuit, after the funds were stolen, the bad actor transferred them to Binance, effectively severing the connection between the ledger and the victims’ digital assets, making them untraceable. However, due to blockchain’s “permanent record,” these transactions remain “permanently and accurately traceable.”

The lawsuit further alleges, “Without a platform like Binance.com to launder crypto, a bad actor who steals someone’s assets risks being tracked down by authorities through blockchain tracing.”

The class action lawyers accuse Binance and CZ of facilitating money laundering. If proven, this could mean they violated the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Read more: Who Is Changpeng Zhao? A Deep Dive Into the Ex-CEO of Binance

The Lawsuit Could Set a Precedent for the Industry

Bill Hughes, a Consensys lawyer with DOJ experience, expressed doubts about whether the plaintiffs’ lawyers can meet the burden of proof, potentially leaving them unable to substantiate their claims. If they fail, the case may not advance to the discovery phase or pre-trial motions, where both sides closely examine evidence and build their arguments.

Despite these challenges, the high credentials of the plaintiffs’ legal team could pose serious risks for Binance and CZ. According to Hughes, these lawyers have previously represented classes in lawsuits against Facebook over consumer privacy breaches, opioid manufacturers, and Wells Fargo over fraudulent accounts.

“Their pockets are deep and they smell the blood in the water,” Hughes remarks.

Hughes also speculates that if the case enters the discovery phase, it could have broader implications for the crypto industry. With Binance potentially required to disclose details on asset tracking and recovery processes, it could lead to increased regulatory scrutiny across the industry.

The case will test the effectiveness of blockchain analytics and on-chain asset recovery, potentially drawing the attention of agencies like the FBI and IRS.

“Oh, the things that Binance would be incentivized to say about tracing and recovery — kind of a tough position to be in, honestly, if you care anything about the industry,” the lawyer explained.  

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

Meanwhile, CZ remains in prison after pleading guilty to violating US money laundering laws. This led to Binance paying $4.3 billion in fines for civil regulatory enforcement. Following his resignation as CEO, Richard Teng has taken over the role.

Despite these challenges, Binance claims to have prevented up to $2.4 billion in potential user losses in 2024. According to a recent press release, the exchange leveraged strong risk management to detect and flag suspicious transactions, effectively stopping fraud that could have impacted over 1.2 million users.